June 30, 2010 is the deadline to file Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR).

Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1)

Each "U.S person", who had a financial interest in or signature authority, or other authority over any bank, securities, or other financial account in a foreign country that exceed $10,000 in aggregate value at any time during the calendar year must report that relationship by filing Form TD F 90-22.1 with the Treasury Department on or before June 30, of the succeeding year. This requirement often applies to investment funds and/or officers or employees of such funds.

New Changes for 2010

The Department of Treasury issued two updates via the Internal Revenue Service that affect FBAR filing for 2010.

Announcement 2010-16 affords relief to "non-U.S persons" by suspending the FBAR filing obligation for 2009.

Tax Notice 2010-23 provides three changes:

(1) Regarding Signature Authority - "U.S persons" with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts.

(2) Regarding Certain Commingled Funds - "U.S persons" with a financial interest in, or signature authority over, a foreign commingled fund that is a mutual fund are required to file an FBAR. The IRS will not interpret the term "commingled funds" as applying to funds other than mutual funds for calendar year 2009 and prior years. In short, the IRS will not apply its enforcement authority adversely to filers with a financial interest or signature authority over a foreign hedge fund or private equity fund.

(3) Regarding FBAR question typically on Schedule B of 2009 tax forms - provided that a taxpayer is afforded relief by Tax Notice 2010-23 and has no other foreign financial account, the taxpayer should check "no" on Schedule B of the 2009 tax forms.

Key Criteria (all must apply for FBAR Filing)

U.S person: means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.

Foreign Financial Account: A foreign financial account includes a brokerage, securities, bank, derivatives, mutual fund, and other financial account. The account must be geographically located outside the United States and its territories. "Other financial accounts" do not include offshore hedge funds or private equity funds for calendar year 2009 and prior years.

Financial Interest: A "U.S. person" will be treated as having a financial interest in an account if:

(1) the person is the owner of record or has legal title, whether the account is maintained for his or her own benefit or for the benefit of others; or

(2) the person is not the owner of record or legal title but the owner of record or legal title is either: (a) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S person, (b) a corporation in which the U.S. person owns directly or indirectly more than 50 percent of the total value of shares of stock or the voting power of all shares of stock, (c) a partnership in which the U.S. person owns an interest in more than 50 percent of the profits or capital, or (d) a trust in which the U.S. person either has a present beneficial interest, either directly or indirectly, in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income;

(3) the person is owner of record or the holder of legal title is a trust, or a person acting on behalf of a trust, that was established by such U.S person and for which a trust protector has been appointed.

Signature Authority: A "U.S person" has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.

Dollar Threshold

If the aggregate balance of the foreign financial accounts exceeds $10,000 at any time during the calendar year, then there is an FBAR filing obligation.

Deadlines

A United States person having met the above criteria for a financial interest must file an FBAR by June 30th, 2010. Yet, A United States person with signature authority over, but not a financial interest in, a foreign financial account must file an FBAR by June 30th, 2011.

Penalties for Failure to File

The penalty for an unintentional failure to file Form TD F 90-22.1 is $10,000. This penalty could apply even if the taxpayer did not know about the filing requirement. The penalty for an intentional failure to file Form TD F 90-22.1 is the greater of $100,000 or 50 percent of the value of the account and the person may be subject to criminal prosecution.

Form 1040 Reporting Requirement

In addition to the filing requirements listed above, an individual taxpayer with a Form TD F 90-22.1 filing requirement will also need to disclose that they have an interest in or a signature or other authority over a foreign financial account and list the foreign country the account is in on line 7 of Schedule B of their Form 1040.

Please review prior to June 30th all foreign account(s) (if any) that your fund has an interest in to determine if the fund and/or any of the offices or employees of the fund have a Form TD F 90-22.1 filing requirement. We've included a copy of the current filing instructions for your convenience. If you have any questions determining if you have a filing requirement or need assistance completing Form TD 90-22.1, please call Mark Wilkinson or Tim LeBrun at (305) 858-5600.

Click here for more information on FBAR: http://www.irs.gov/businesses/small/article/0,,id=148849,00.html.

About Kaufman Rossin Fund Services
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